Fashion brands hope Covid will banish end-of-season sales

Bargain hunters may have noticed stingy discounts on clothing this year. Fashion chains would like the trend to continue, although it will be difficult as inflation bites.

On Friday, Swedish fast-fashion company H&M HM.B 4.43%

Hennes & Mauritz reported much better earnings for the quarter through November than analysts had expected. The company’s revenue is now back to pre-pandemic levels and operating margins are higher. Management also announced ambitious plans to double sales by 2030 and increase margins above 10%. Shares of H&M rose 5% in morning trading.

To hit the profit target, the company wants to hold on to a skill the pandemic has forced on many fashion players: greater discipline with inventory. Several European clothing brands that source their inventory from manufacturers in Asia were unable to source as many garments as usual due to shipping delays and congested ports. This meant that they sold what they had at full price and less stock was devoted to end-of-season sales, which inflated margins.

At the end of November, H&M held inventory equivalent to 18.7% of sales, compared to 20.4% a year earlier. Management told investors on a Friday call that it wants to be even leaner going forward, cutting inventory levels to 12% to 14% of long-term sales. Other European fashion brands have reported the same trend. UK-based Next, which also sources most of its supplies from Asia, started Christmas with less stock than was ideal. Yet it now has 18% less stock that needs to be sold in January than in 2019 and this month it raised its profit forecast.

Many US retailers also entered the holiday season with less stock than usual. The apparel inventory-to-sales ratio was 1.82 in November 2021, the lowest number since at least 1993 and down from 2.29 for the same month of 2019, according to US Census data. Office. The big exception to the trend was Zara owner Inditex,

who is based in Spain. The world’s largest fashion retailer by turnover sources closer to home than its peers and has therefore had fewer headaches with shortages.

It might be difficult to keep the profits from selling more goods at full price. Consumers have been exceptionally price insensitive during the pandemic, as they saved money during shutdowns, received government stimulus checks and spent money on fashion that might otherwise have been spent on travel or socializing. All retailers, from supermarkets to luxury brands, have benefited: this week Louis Vuittonit is

Owner LVMH said its operating margins were up more than five percentage points from 2019 levels.

The Covid pandemic has strained global supply chains, causing freight backlogs that have driven up costs. Today, some companies are looking for longer-term solutions to prepare for future supply chain crises, even though these strategies come at a high cost. Photo illustration: Jacob Reynolds

Competition for customers will likely increase as inflation eats away at their purchasing power and the world gradually reopens to travel. Low inventories could also prove difficult to reconcile with H&M’s new goal of increasing sales by 10-15% per year. The company has ruled out large price increases, leaving its strategy to be based primarily on increasing production, although it plans to take a bigger share of the clothing resale market, which could help it obtain multiple transactions for each garment she makes.

Retailers have gotten to know their supply chains better and have become more adept at managing inventory levels during the pandemic. This can only be good news, but it does not follow that consumers will always be able to pay top dollar.

Write to Carol Ryan at carol.ryan@wsj.com

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